A feeding frenzy is underway for long term US debt as the Euro trades at its lowest levels since January. Whereas gold might normally catch a bit of safe-haven demand, the current strength of the Dollar relative to the Euro has gold plummeting to it’s lowest levels since late September. Stocks are in the toilet as well with the SP down to 1211. In the space of 1 hour, four decent-sized block trades hit 5 and 10yr futures. The Fed also sold a big chunk of 1-2 year paper today, and markets know full well that it ends up in the long end of the curve.
All of the above have been like helping hands, pushing the snowball further down the hill, and adding to its already hefty mass. If there’s a clear cause and effect relationship between the 11am-ish acceleration of the bond market rally, it’s not readily apparent. Perhaps a set-up for today’s 30yr bond auction is also in play. What IS apparent is that MBS have been doing a fairly decent job of keeping pace with the rally. Fannie 3.5’s are up 6 ticks on the day at 102-17, and we’re already at a point where a few of the “early” lenders might be considering small reprices.